Urban Economy & Finance

UN-HABITAT

What is Urban Economy / Finance?

Let us explain these terms and why they are important

Urban Economy

Urban economyis the economic study of urban areas; as such, it involves using the economic tools to analyze urban issues such as crime, education, public transit, housing, and local government finance. It is focused on promoting urban strategies and policies that strengthen the capacity of cities to realize their full potential as drivers of economic development, and of wealth and employment creation. Special attention is paid to the formulation and implementation of urban strategies and policies that promote and boost the participation of both men and women, enhance municipal finance and contribute to the creation of decent urban jobs and livelihoods that increase economic empowerment, in particular for youth and women.

Urban Finance

Urban finance concerns itself with the study of revenue and expenditure decisions of municipal governments. It covers the sources of revenue that are used by municipal governments – taxes (property, income, sales, excise taxes), user fees, and intergovernmental transfers. It includes ways of financing infrastructure through the use of operating revenues and borrowing as well as charges on developers and public-private partnerships. Urban finance also addresses issues around expenditures at the local level and the accountability for expenditure and revenue decisions, including the municipal budgetary process and financial management.

Why does Urban Economy and Finance matter?

By 2050, an estimated 70% of the world’s population will live in cities. As a result of this rapid urbanization, there is need for new infrastructure: new roads, new sewage systems, new power stations, water-supply networks, telecommunication networks, etc. Without this infrastructure it will not be possible to create sustainable cities – cities that are considerate of their social, economic, and environmental impacts, cities that offer an adequate habitat to their populations without undermining the ability of future generations to experience the same. Without this infrastructure, urban poverty, pollution and inequality will increase and the population living in slums will increase beyond the already staggering 1 billion.

To address these challenges, cities must optimally utilize their investments to improve public service delivery. Strategic thinking and urban planning are necessary to ensure that these investments optimally leverage the value creation and human resource potential of cities. The effectiveness and strategic nature of these investments is crucial as there is not enough funding available to fill the global infrastructure gap of nearly $1 trillion. Given the size of this investment gap it will however not suffice to increase the effectiveness of investments in cities. Work is necessary to attract more private sector funding, decrease the cost of finance for cities and strengthen cities’ own-source revenue generation. Urban Economics and Urban Finance are two complementary fields without which it will not be possible to meet the public service delivery challenges our cities are facing world-wide.

Our Role

What is our mission at the Urban Economy and Finance Branch?

Normative

As a United Nations agency our role is to disseminate best practices, share knowledge, connect diverse actors and advocate for improved urban economic and financial practices

Operational

Normative work has to be based on the insights which emerge directly from the field. We therefore also support our partners in a variety of technical ways. Our normative and operational work is tightly connected and one reinforces the other

What operational/technical support do we provide to our partners?

Supporting sub-national governments optimize their own-source revenue

Sample Analysis (Illustrative)

Land-based finance instruments

e.g. Nearly unused27%

User Fees

e.g. Room for Improvement 50%

Fines, & Other Revenue Streams

e.g. Nearly fully leveraged82%

Increasing access to credit, grants and private sector investment

Funds

Supporting with the design and capitalization of local investment funds

Grants

Supporting access to various grants and donor funding

PPPs

Optimizing usage of public-private partnerships and bankability of projects

With limited funding it is crucial for local governments to be strategic as to where they put their money. We support local governments in finding a strategy that optimally leverages local resources, assets and capabilities

Leveraging the Private Sector

To minimize financial constraints, private sector investment needs to be attracted for basic service provision and economic growth. We support local governments in improving business conditions and finding key investment opportunities

Addressing Informality

One of the key characteristics that local governments need to deal with to leverage the private sector and increase local revenue is informality. We help governments work with the informality of their economy

With rapidly growing populations, backlogs of infrastructure projects and scarce public funds to finance them, cities must look to abundant sources of private capital to finance their development needs.